Paths to New Revenue: Reaching Underserved Markets

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The phrase “underserved customers” usually refers to the roughly 55 million unbanked or underbanked adult Americans tracked by regulators such as the Federal Reserve.  These customers are usually described as low- to moderate-income. However, this does not tell the entire story, as the underserved segments can reflect specific age brackets, racial minority groups, and even small businesses who for various reasons are not well cared for by the mainstream banking industry.

So why do banks struggle so much with these segments?  Cost-to-serve is often described as the major obstacle by banks to pursue the underserved segment. By some industry estimates, the average cost per checking account at a traditional bank is about $325 annually.  These banks need a minimum average daily balance of approximately $8k in the account just to be profitable. The Top 3 banks today say that between 25% and 40% of their checking accounts are not profitable, and other lines of business are essentially subsidizing these accounts.

Additionally, regulatory & industry pressure has only increased over the decades, further adding to the cost and complexity banks face.  The Fair Lending Laws came into place in the late 1960s and grew throughout the 70s with such acts as the ECOA and the CRA. Government funds like the CDFI promote community development through the OFN, The OCC’s statutory mission was revised in 2008 to assure “fair access to financial services, and the fair treatment of customers by the institutions.”